SP Chapter 1

7/30/2019 SP Chapter 1

1/18

Secretarial Practice

1. Business Finance

STD. XII


2/18

Introduction

Business finance is a broad concept. It deals with all

financial activities of the business. The term business

covers both commerce and industry. In simple words,

business finance applies to all financial activities ofagriculture, industry, banking, transport, insurance,

etc. Thus the scope of business finance includes

commercial finance, industrial finance, property

finance, corporate finance and agricultural finance.

In an academic world, the term corporate finance is

now known as financial management.


3/18

Financial Management

Financial management is a specialised function of

general management. It refers to management of

business funds. It is mainly concerned with raising of

finance and its effective utilization for achievementof goals of the organization.

Definition

Kuchal S.C,

Financial management deals with procurement of

funds and their effective utilization in business.


4/18

Role of financial management

Functions

1. Routine functions:

Record keeping and reporting

Preparation of various financial statements

Cash planning

Credit Management

Providing information to BOD on currentfinancial position for making decisions of

purchases , marketing , pricing, etc.


5/18

2. Executive Functions:

Forecasting financial requirements

Deciding sources of funds

Investment decisions

Dividend policy

Checking and analysis of financialperformance

Advising BOD


6/18

Objectives of financial management

1. Profit Maximization

2. Wealth Maximization:value maximization

maximising market value of shares


7/18

Financial Planning

Financial planning is an important function offinancial management. It is a continuous processin day to day administration of business.

It is not possible for business manager to goahead unless he prepares financial plan.

FP is not only required for profit making but evenfor survival of a firm.

The term FP refers to assessment of financialrequirements and arranging the sources ofcapital.


8/18

Definition

J.H. Boneville

The financial plan of a corporation has two foldaspects, it refers not only to capital structure of

the corporation but also to the financial policies

which corporation has adopted or intends to

adopt.


9/18

Significance of FP

Elimination of waste

Co-ordination

Dynamism Communication

Decision making

Integration Futuristic


10/18

Capital Structure

Capital structure constitutes two wards i.e. capital

and structure. Capital refers to investment of funds

in the business while structure means arrangement

of different components in proper proportion. Thuscapital structure means mix-up of various sources of

funds in desired proportion.


11/18

Definition

Weston and Bringham

Capital structure is the permanent financing offirm represented by long term debt ,preferred

stock and net worth.


12/18

Components of capital structure

Equity share capital

Preference share capital

Retained earnings Borrowed capital

(a)Debentures

(b)Term loan


13/18

Factors influencing capital

structureInternal Factors

1. Requirement of capital

2. Size and nature of business

3. Growth of business firm

4. Adequate and stable earning

5. Cash position

6. Period of finance

7. Future plan

8. Trading on equity

9. Capital earing

10. Attitude of management


14/18

External factors

1. Market condition

2. Attitude of investors

3. Cost of capital

4. Government regulations5. Attitude of financial institutions

6. Rate of interest

7. Taxation

8. Competition


15/18

Fixed Capital

The concept of fixed capital was first theoretically

analysed by David Recardo. It refers to any kind of

real or physical capital i.e. fixed assets. It is not used

for the production of goods. Fixed capital is thatportion of total capital which is invested in fixed

assets such as land, building, equipment, etc.

According to Karl Marx,

Fixed capital also circulates, except that the

circulation time is much longer.


16/18

Factors affecting requirement of fixed

capital

Nature of business

Size of business

Growth and expansion of business

Stage of development of business

Business cycle


17/18

Working Capital

There is no universally accepted definition of workingcapital. Various financial experts have used this term indifferent ways.

difference between current assets and current

liabilities.

Gerstenbergh,

The excess of current assets over current liabilities

Western and Brigham,

WC refers to the firms investment in short term assets cash, short term securities, accounts receivables andinventories.


18/18

Factors affecting the requirement of

Working Capital

Nature of business

Size of business

Volume of sale

Production cycle

Business cycle

Term of purchase and sale

Credit control

Growth and expansion

Management ability

External factors

Requirement of cash

Seasonal fluctuation

Documents

SP Chapter 1